In what may go down in history as the fastest ever ideological volte-face, the entire West is rapidly nationalizing its banks. After the US and Great Britain, eurozone members agreed yesterday to throw away public money by the hundred-billion bucketful. They will re-capitalize their own rickety financial institutions, vowing to prevent the closing of even a single bank.

What they are doing is the wholesale commitment of heretofore unthinkable sums of public money - that's your money, in case you didn't realize - for the bailout of institutions that completely and hubristically scorned their obligations to the public trust; obligations that were placed upon them by regulators who, admittedly, fell asleep at the wheel. And politicians are asking us, the average Tom, Dick and Henri, to fund them anew so that they can... what? Start the whole process once more?

Unfortunately, most people don't in fact realize that the torrents of "government " money that is so casually being thrown about is their very own; that it is they who are financing this Knee Jerk Boondogle. What's worse, their scheme has a snowball's chance in Hell of working out. No matter how many newly borrowed (i.e. taxed) dollars, euros, rubles or kronor are thrown at it, this problem will persist for a very simple reason: as the masthead says, a debt crisis cannot be resolved by incurring more debt.

The "establishment" is desperately trying to avoid the inevitable: deflation. With deeply ingrained institutional memories of the Great Depression guiding them, mental-lemming leaders cannot see past their cartoonish understanding of financial history. Note to George, Gordon, Nicola and Angela: watching black and white documentaries from the 1930's and listening to Bernanke does NOT constitute financial education. Grow up and read a few books (some even appear on the sidebar of this blog). Today's situation bears no resemblance to the 1930's and therefore dealing with it requires a completely different course of action.

Let me put it this way: it is you elected (at best) ladies and gentlemen that have previously set and/or allowed the financial Navy Seals to wreak havoc upon the population at large. And now you ask us to scrimp and save to make matters right, while allowing the demolition goons to keep their toys? In the immortal words of Brigadier General McAuliffe during the Battle of Bastogne: "NUTS". Or, if you prefer a more Continental reference, from Waterloo: "MERDE".

I have more to say, but this is a family-oriented blog so I'll stop right here before Good Housekeeping removes their Seal of Approval...

41 comments:

shargash
said...

Oh, I don't know. I think there are more similarities with 1930 than meets the eye. The following quote is from the book "A Bubble That Broke the World," published in 1931 as an attempt to explain what had gone wrong. It is a book I'm sure Bernanke is familiar with, but he has doubtless dismissed it.

"This is a delusion about credit. And whereas from the nature of credit it is to be expected that a certain line will divide the view between creditor and debtor, the irrational fact in this case is that for more than ten years debtors and creditors together have pursured the same deceptions. In many ways, as will appear, the folly of the lender has exceeded the extravagance of the borrower.

The general shape of this universal delusion may be indicated by three of its familiar features.

Hell:Make like Harry Truman and give it to them. I agree with you. In the 1930s we were on the gold standard. With a fiat dollar, today's model is 1922-23 Germany. I doubt we will be pushing wheelbarrows full of dollars, but 10-15% annualized inflation with periodic spikes up to 25-30% would not surprise me at all.

“Unfortunately, most people don't in fact realize that the torrents of "government "money that is so casually being thrown about is their very own . . .”

People in general have almost no sense of what is “theirs” in terms of bank deposits standing to their credit being that over the past four decades “theirs” has come to mean how much credit they have available, i.e. how much money will the lenders lend them. Is it any wonder then that they can stand there with vacant expressions on their faces as this torrent which might otherwise go for State and Federal infrastructure or Health, Education & Welfare (to name only two possible benefactors) is thrown down the toilet and into the sewers of the banking system generally? I find it wholly comprehensible. They have become inured to the whole concept of money as “theirs”. It has become someone else’s and they don’t raise a finger to prevent it. Whatcha never had, ya never miss.

These moves are theatre keeping the public from making a world wide bank run and of course paying of the politically connected financial elite. Banks exist to create debt and since the shakles of regulation were lifted they have done a remarkable job but have created a business cycle that is dependent on excessive credit creation to generate GDP growth which will now begin the process of deleveraging back to a early time slot and taking with it millions of jobs and business that have been created by this leverage credit boom. No were to hide really, but it looks like a very long period of economic malise as gov't and the financial sector elite try to reinvent the financial bubble

Perhaps we should start gauging the economy based on Hell's civility. Bank nationalization equaled "merde". I shiver to think what will get the F-bombs dropping :)

Yoyomo,

"freeze-dried/vacuum-packed is supposed to last at least 10-15yrs"

Seriously? I had no idea. A person's nervous system might be able to settle down for a while if they had 10 years guaranteed calories. Also, whaddya make of that interfluidity link? Paulson learned everything about the Fed while running Goldman Sachs and is now using the knowledge subversively... Paulson secretly running the Chinese government? Sorry, I tend to go overboard with conspiracy excitement.

Dear H,I understand how lonely it must have been to write your blog and how frustrating it must feel to watch the Great Unravelling. But pleease do not get angry - it will eat you up and leave you bitter and twisted. Thats too much like letting the bad guys win.Thanks to your blog I have been ahead of the curve all along.Don't be too hard on Bumble Brown and Dimwit Darling. If they hadn't saved the banks,I, along with many others would have lost our life savings.

Today I contributed my part to the coming deflation by laying off all of my remaining employees, as my business has dwindled to a standstill. I'm moving out of my office to smaller digs (thank god for month-to-month leases) and am seriously wondering about my survival.

Here's the most amazing part is that after discovering this and other blogs (CR, Mish, even the sometimes extreme, but often accurate Market Ticker) two years ago, I have devoured the interpretations and conclusions put forth by people much smarter than me about such things. While I have a much better understanding of how a hedged CDS transaction works, this knowledge did little to nothing to prevent the decline of my business from the financial tsunami that is coming ashore as we speak.

I own a commercial architecture firm (a FIRE economy business, at least I know what FIRE means!) with two other partners. My few remaining projects are 'finance-free' (ALL cash). Not a bank financed one in the bunch. My peers report empty pipelines across the board, other than medical or institutional work, such as schools.

Thanks to Hel for presenting some of the most clear and insightful explanations of what is going on. It looks like Calculus has outsmarted Debitus once again...

A partial solution to the fiscal paradox of replacing private debt with public debt, precisely when a deep recession will reduce public fiscal resources, and when foreign creditors will have fewer recyclable dollars due to declining imports and be wary of the long-run devaluation of the dollar as required and expected as a partial solution the the huge U.S. trade deficit: a surtax on the net wealth of millionaire households.

the overall governments move is simply substituting zero maturity or short term maturity money, that is missing in the banks vaults, with longer term money considered safe. That is exactly curing the problem with more of the same, as banks overstreched borrowing short term to lend long term. Plus fraud here and there.

So everybody gets it right here: the problem is to figure out the consequences and act to protect our wealth. We can't protect the governments and the people who elected them all.

-Lending money to certain states and cities for infrastructure needs (and thereby creating more jobs, and investing in the future)

-bailing out the us auto makers (a band-aid to keep auto makers from cutting MORE jobs)

then there's the:

-90 day moratorium on home foreclosures,

-elimination of the tax penalty from early withdrawal of retirement savings plans

(both in an attempt to keep the average joe from getting even deeper in the MERDE)

...

Granted, they're all temporary solutions, and don't really solve the underlying issue of increasing American's stagnant wages, BUT... it seems to be the right kind of band-aid for the current situation. As well as showing a kind of economic philosophy which would be more in keeping with your diagnosis of the problem.

Market Watch is reporting that the Obama campaign in considering Janie Dimon for Sec. of the Treasury. NOTHING ever changes.

I do like some of the Obama proposals. I doubt Wallstreet will agree to letting the poor working person to withdraw up to $10,000 from their retirement fund. The TPTB will do nothing to help the little guy.

"Today I contributed my part to the coming deflation by laying off all of my remaining employees"

In 2006 I happen to have a long discussion with an owner of a commercial architecture firm who was gearing up for large and bigger times ahead. I layed out why that was such a bad idea but she was convinced that her wealthyclients would always have the funding so it was get bigger faster. Don't know what happened but reading your post gives me a good idea.Best of luck in the future.

"The FT has calculated that European governments (including non euro area) have made available a total of €1873bn – which is roughly the entire annual GDP of France! – to save the banking sector. Our guess is that we may soon have a discussion about national solvency"

I'm in Texas. We have barely enough work to stay in business for the time being. What I'm hearing is that the ridiculous high end residential market (paying cash)is still active, mostly due to the massive amounts of money made from the oil business over the last few years. I do think that it will slow down, though, as oil drops back to earth. I also think that last week's meltdown will definitely have a chilling effect on the residential market.

Most of my other peers give one of two answers when I ask what they are working on: Schools or Hospitals. Some firms here have a lot of oil company commercial work, such as worker's housing in Lagos, Nigeria, or the huge cultural/educational projects being built in Saudi Arabia right now. There is some Dubai work here, but I'm hearing that the Dubai party is coming to an end.

Hospitals are still being built (boomers a' comin')but I was told about a month ago by a principal in a large hospital firm that her hospital clients were having trouble getting financing. I'm amazed at the number of 'doctor's hospital's' that I hear are closing recently. Doctor's may be the only group worse than architects at business management.

I sit here at my desk at work---for now---and gawk wide-eyed in utter amazement at the depths to which human beings will go in order to satiate their lust for power and their Midasian greed. Paulson, Bush, Bernanke: soucndrels, one and all. Scumbags of the highest order. Liars who would sell their souls to the devil, who would swear on the lives of their families, that they are telling the truth. But no amount of dissembling or obfuscation can change the laws of nature: reality, in the end, always wins out.

Toxic “assets” in the tens of TRILLIONS of dollars fill the casks and vaults and safes and basements of the world’s major financial institutions. Worthless pieces of paper that, when exposed to the light of day, will bring the global economy as we know it to its knees. There is no escaping this reality. None. The laws of nature will eventually pull the curtain back on the Oz-like charade that is being played out in Washington and Paris and London and Berlin, and the global economy will shatter.

And so in the intervening days/weeks/months, Paulson and Bush and all of their minions pump trillions of dollars of “money” into these so-called “healthy” institutions in order to loosen the credit market so that, at least for the time being, things regain the appearance of a recovery. And an election takes place next month, and the DOW “rebounds” to about 10,400 give or take, and a few of the largest banks begin easing credit restrictions and reluctance to take on risk, and all seems to be moving in the direction of eventual better times. And yes, recession exists, and the economy is tight, and jobs are lost, but the new President goes on TV and tells the people that, while times are tough, we are a strong people, and we will recover. (Meanwhile Bush and Paulson and their minions have moved to a small island off of the coats of Costa Rica and hired Blackwater to protect them from the rest of the world.)

But soon thereafter, at some unknown moment in time, all of the fake money, the supposed assets and capital that the Bushies have pumped into the system---all of the trillions of dollars in guarantees promised by the countries of the EU to their financial institutions---all of these monies become exposed for what they really are---MORE DEBT. More lies, falsehoods, specters. Trillions of dollars THAT DO NOT IN FACT EXIST, loaned to banks and insurance companies and auto makers in “hopes” that they, somehow, will be able to make some money and build capital that, at this point, is simply a wraith in the night. But of course this plan fails. It must fail. It is just another layer of the grand ponzy scheme of the millennium, perpetrated on the people of the Earth by a handful of greed-mongering bastards and sons-of-bitches.

By way of metaphor, this situation is akin to building a tower on unsteady ground, and instead of deconstructing the tower and starting again, you simply make the tower taller and claim to the people that this truly is the most wonderous tower in the world, a monument to the strength and resolve of the people. But it must fall. The laws of physics demand it. And the same is true of our current economic joke.

And so I sit here and watch economist after economist, legislator after legislator, president after prime minister after finance minister, claim that the plan “will” work. And they are all lying.

But it cannot work. It cannot. The laws of nature will win out…because they always do. Always.

I popped into yesterday's comments and it looks like you have your hands full. I think Marx meant well, but like the folks who wrote the US Constitution, he couldn't begin to imagine the complexity that the future held in store.

Dan W.

"And so I sit here and watch economist after economist, legislator after legislator, president after prime minister after finance minister, claim that the plan “will” work. And they are all lying."

The best liers have convinced themselves their story is true. Fear and hope help convince people of the craziest stories.

I've never purchased anything from the site but I do know that it's been up at least 3 1/2yrs. I'm sure there are other sites if you want to scout around. His news feed is first rate, lots of info on peak oil, peak credit etc but not enough hours in the day to soak it all in. Gear and grub for the well prepared survivalit. Hope this info is useful.

I popped into yesterday's comments and it looks like you have your hands full. I think Marx meant well, but like the folks who wrote the US Constitution, he couldn't begin to imagine the complexity that the future held in store.

I'm not sure what you mean. I wasn't holding Marxism up as any sort of tonic to the present set of circumstances though Marx is best critic of capitalism to date.

These geniuses at the treasury just gave billions of tax payer moneywith no conditions attached. So if the banks wanted to they couldcash in their $250 billion and pay it out in the form of a cashdividend to their share holders. O the fun the banks can have...

It gets so much better: As head of the new Office of FinancialStability during the final months of George W. Bush's presidency,Kashkari (35 year old dude from Goldman) is responsible for overseeingthe selection of private contractors for Treasury's Troubled AssetRelief Program, hiring permanent government employees for the effortand setting standards that will govern how conflicts of interest aremanaged. Hmm, this sounds just a little bit to familiar -- Iraqreconstruction maybe. Do you think Kashari will be asking ifperspective employees are Pro Life?

Hell, I value your comments enormously, and the same goes to commentators here. I like some other sites a lot as well, but I enjoy the cold and crisp style that Hell has, and really like the fact that the comments here have some more substance, me thinks.

Then my two cents; I cannot understand the massive spending spree that the US is on. You are overextended and need to cut the spending - with the exception of all infrastructure, which is rotting at the moment - and take in taxes the money from those who have it.

Americans need to grow up, or America will have no future.

Next year the debt will double and the money available will diminish. China and Oil countries will not have the money to lend.

Yields will skyrocket.

I wish I were wrong, I so would like to see better and more optimistic future ahead, but I cannot.?

Thanks for the info. I wish I had some @%^@$ time. I wonder if there are any survivalist consultants out there to research and purchase things for me (hmmm... there is a certain ironic patheticness about that sentence).

Edwardo,

"I'm not sure what you mean. I wasn't holding Marxism up"

Oh, I just meant that Rachel and Anon had some late comments in the previous post for you.

Thai,

"Do you think Kashari will be asking ifperspective employees are Pro Life?"

great post. my thoughts exactly. vote with your dollars. buy something of value. inflation is coming from all this foolishness in the near future. a great decline in the American standard of living is coming. You are correct about this decline, this isn't like 1929 with its over-production, it is more like the panic of 1873, with a complete collapse of the consumer and public savings.

"Do you think Kashari will be asking ifperspective employees are Pro Life?"

Kashkari is Kashmiri; the chances of him being an Evangelical are 1 in 10,000. He's either Muslim(95%) or Hindu(5%).

Dink,Did you take a look at the long list of books Savinar carries; one of them might be a primer on what you want to know. Maybe you could convince >1/2 to pitch in and do some reading up on the subject if you find the right book. Ask around; I wish I had a title I could recommend. If you post a request for suggestions on Kunstler's comments section I'm sure you'll get plenty of replies.

You can skip forward in the comments section by clicking on comments, going to the bottom of the page, clicking on the next arrow and then going up to the URL and changing the number in the URL as follows:

/comments/page/2/

change that 2 to the page number you want to go to or if you want the last page type in a large number (99) and it will skip you to the last page of the comments section (assuming their are less than 99 pages; I don't think there have ever been that many pages but some weeks can have a pretty impressive comment load).

My friends, I just had the enormous pleasure of rediscovering the scene in Mary Poppins where Oliver Banks takes son Michael into his dusty, decrepit BANK to deposit his tuppence allowance : song and dance routine with all the old curmudgeons just SALIVATING to get their hands on Michael's tuppence, ugly, ugly, and SO unseemly (great song, remember ? Go watch Mary Poppins again if you don't.)And when Michael says "no" and the old fogys get all upset and try to dissuade him, it provokes a run on the bank's assests. Remember ?I almost wet myself listening to it.Especially in the current financial context.

"What they are doing is the wholesale commitment of heretofore unthinkable sums of public money - that's your money, in case you didn't realize - for the bailout of institutions that completely and hubristically scorned their obligations to the public trust..."

"watching black and white documentaries from the 1930's and listening to Bernanke does NOT constitute financial education. Grow up and read a few books..."

Well, there's no hope of them taking your advice, but it would have been nice if they had.

About Me

I was educated as a chemical engineer but spent almost my entire career in finance, particularly in money, FX and bond markets. The name stands for Hell-as-IOUs and the picture points to Quixotic endeavors.